By Angus Brown | Source: MLA, Mecardo.
Last week we took a look at the record numbers of cattle on feed in Australian Feedlots, a remarkable feat given the price of feed. This week we take a look at the market dynamics for lotfeeders and see that rising grainfed cattle prices are seemingly still pulling cattle through the supply chain.
We have been seeing a divide for lotfeeders in terms of margins over the last six months. Cheaper feeder cattle in the north has seen northern feeders seemingly keeping numbers in feedlots up. This was borne out somewhat in the September cattle on feed survey, with estimated placements of cattle on feed down 13% in NSW and 37% in Victoria.
Since the end of September, the weaker margins for cattle on feed in the south might have had an impact on the price of grainfed cattle. Back in late October the QLD Over the Hooks 100 day Grainfed Steer price jumped 18¢, or 3.2% to hit a fresh 16 month high of 576¢/kg cwt. Figures 1 and 2 show that this pushed lotfeeder margins in the north to very good levels, while in the south they moved back into the black.
We can see input costs also jumped higher in the north, in response to stronger margins and some rain, but margins remain at a healthy $145 per head before overheads. In the south, margins are skinnier, hitting $78 per head last week as easing grain prices gave some assistance. Recent grain moves suggest the better margins in the south might be short-lived.
The increased price of grainfed cattle has dragged the price of heavy grassfed cattle with it. Figure 3 shows the QLD Heavy Steer Indicator has rallied from lows around 470¢ back in September, to 558¢ last week. This suggests that while in historical terms the supply of grainfed beef has never been stronger, it has to be in order to replace the grassfed beef that hasn’t been produced this year.
Key points
* Record cattle on feed despite high grain prices is possible thanks to rising grainfed cattle values.
* Lotfeeder margins have returned to more profitable, or less unprofitable, levels in the last six weeks.
* Grainfed cattle prices should remain strong, supporting grassfed heavy cattle prices.
What does this mean?
Highly negative lotfeeder margins never last long and this has again been the case. The threat of weakening cattle supply has pushed grainfed cattle prices back to highs not seen for nearly two years.
Higher grainfed cattle prices are good for lotfeeders, those that supply them, and even those that produce grassfed cattle. For high cattle on feed numbers to be maintained, it is going to take similar prices over the coming year, especially if feeder supplies get tight. This makes a good case for looking to grass finish cattle on available feed, as heavy grassfed prices should remain strong as well.
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